Markets skeptical over euro debt crisis response

Seesawing expectations about this weekend's summit of European leaders remained the main driver in markets on Thursday, with investors growing skeptical again about governments' ability to agree on a strategy to deal with the debt crisis.

Stocks in Europe took a battering following an earlier retreat in Asia and despite modest gains at Wall Street's open. Many in the markets think the fate of the global economy hangs on what is agreed.

There was plenty of speculation on Thursday, including a suggestion that Sunday's summit would be postponed. It's already been postponed once to allow leaders to iron out their differences.

What has been confirmed is that Greece's international creditors will hand over the next batch of bailout cash to Greece, despite their concerns over the sustainability over the country's debts.

Underlying all Thursday's developments are ongoing worries that the eurozone is split over key issues that need to be addressed, such as expanding the bailout fund, recapitalizing the banks and finalizing the terms of a second rescue package for Greece. France, Europe's second biggest economy, is thought to be wary of committing too much money in case it loses its cherished triple A credit rating.

"With only a few days left before the much ballyhooed European summit takes place, expectations of something concrete being hammered out are disappearing on talk of France and German disagreements on key issues," said Jennifer Lee, an analyst at BMO Capital Markets. "Again, why there should have been any expectation of a miraculous foolproof plan to be agreed upon is astounding."

Over the past few weeks, stocks recovered a chunk of their losses for the year on expectations that the 17 countries that use the euro were preparing a three-pronged solution to the debt crisis. That would include measures to boost the firepower of the bailout fund, a recapitalization of a large part of the banking sector and a plan to get the banks to take a bigger hit on their Greek debt holdings.

This week, though, sentiment has oscillated between hope and skepticism. A general strike in Greece, which has paralyzed the country and seen outbreaks of violence, is doing little to convince investors that the government will be able to push through its reforms and austerity measures.

"Financial markets are not normally known for their patience and yet for the time being they are giving our political leaders and central bankers that most precious of commodities: time," said Louise Cooper, markets analyst at BGC Partners. "I would say that the smallest event can cause everyone to head for the exit, and predicting what event will cause panic is almost impossible."

In Europe, Germany's DAX was down 1.4 percent at 5,834, while the CAC-40 in France fell 1.2 percent to 3,119. The FTSE 100 index of leading British shares was 0.7 percent lower at 5,414.

U.S. stocks recovered some of their previous day's losses after encouraging weekly jobless claims figures suggested that the U.S. economy is continuing to generate jobs. The Dow Jones industrial average was up 0.3 percent at 11,539, while the broader Standard & Poor's 500 index rose 0.3 percent to 1,212.

The euro was hit by concerns over the upcoming summit, trading 0.2 percent lower at $1.3737.